What You Need to Know About Clean Energy Tax Incentives for New Homes

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Did you know that by upgrading to green energy, you could save up to 30% on your annual utility bills?

The cheapest way for you to go about saving money on utilities is to reduce your consumption. While adjusting the temperature of your thermostat and opting to use Coldwater can help you to trim your electric bill, it doesn’t reduce the carbon footprint of your home.

That’s why the government is offering tax incentives for homeowners who are making a difference in their home’s energy profile by making home improvements and upgrades.

Besides the local and state tax credits that you can receive, there are federal tax incentives, as well as other financial incentives that help to offset the cost that comes with upgrading to green energy.

If you’re interested in learning more about clean energy tax incentives for new homes, we’ve created a complete guide to help strengthen your understanding. Keep reading to learn more.r

Tax Education clean energy tax incentives

Tax Incentives for Green Energy

The majority of the tax credits to come for increased home efficiency and green energy are valid through the end of 2021. These tax credits are offered by the federal government and can be used by any homeowner in the United States who files a federal tax return.

Unless otherwise mentioned, you can apply for each credit by filing an IRS form 5695 along with your federal tax return.

What Is the Federal Solar Tax Credit?

When you have a solar system installed, you can claim 30% of the total cost of your project on your federal tax return. This includes any money that you spent on permits, equipment, and installation.

For example, if you spend $10,000 on a solar system, you’ll be able to deduct $3000 from your federal tax return. By 2022, the solar tax credit will expire.

Solar Energy

The current solar tax credit is dollar for dollar reduction of the income tax that you currently owe. For every dollar that you invest in solar power for your home, you’ll receive a credit, which results in you Paying less on your taxes.

If you only owe $4000 in federal taxes, claiming a $3000 solar tax credit will pay off a portion of your liability is federal taxes. That means that you only have to worry about paying $1000 in federal taxes after you’ve applied for your solar tax credit.

A solar tax incentive is different than a refund because you have to owe taxes to the federal government to be able to claim the credit.

Solar Water Heaters

For you to be able to qualify for a federal tax credit, the solar water heaters that you install your home must generate at least half of their energy from solar. Also, they must be certified by the solar rating and certification corporation.

If the solar reading and certification corporation don’t certify your solar water heater, you can purchase an energy star rated solar water heater to qualify for the tax credit. Also, the solar water heater must be used within your home and cannot be used for a swimming pool or a hot tub.

Solar Panels

Solar panel systems that qualify for the federal tax credit must be able to generate electricity for the entire home. Also, they have to meet all applicable electrical safety and fire safety code requirements, which can vary based on the location that you’re living.

Wind Energy

According to the American Wind Energy Association, the average cost to install a small wind turbine for the use of a homeowner is approximately $30,000. The cost of a small wind turbine will pay itself off within six years.

To qualify for a federal tax credit from the government, your small wind turbine must have a maximum capacity under ideal wind conditions that generate no more than 100 kW.

Fuel Cell Energy Generation

Microturbine systems and residential fuel-cell systems are a type of compact unit that work together to generate heat for your water, electricity, and heat for your home. The systems work together in a single location within your residence and can operate independently, away from a local power grid.

This means that the systems will operate even if your area is experiencing a blackout. Depending on natural gas or liquid fuel that’s comprised of organic materials, the average cost to install a fuel cell energy generation is an estimated $25,000.

With the federal clean energy tax credit, you can claim 30% of the installation and equipment cost on your tax returns. However, you’re only allowed to claim a maximum of $500 per 0.5 kW of your fuel cell generators capacity.

Air Source Heat Pumps

Installing an air source heat pump in your home will allow a single system to distribute heat and cool air throughout your home evenly. And air source heat pump will work it up to three times the efficiency of a traditional HVAC system.

During the cold weather, the heat pump uses a gas or oil furnace to provide heat. When the weather is mild, the heat pump moves cool air throughout your home, replacing the need for a furnace and an air conditioner.

The new average home with the heat pump can save up to $459 per year if your home uses an electric heater. However, if your home uses and oil-fired system to heat your home, you can save up to $948 a year.

By using a ductless air source heat pump, you can efficiently heat an average-size home for up to $7000 and installation and equipment costs. If you’re interested in hitting a larger house with a whole-house heat pump, you can expect to spend upwards of $20,000 for equipment, new ductwork, and installation.

Tax Education clean energy tax incentives

State Green Energy Tax Incentives

In addition to the federal tax incentives that you can receive for installing green energy in your new home, many state and county governments also offer green breaks.

Depending on the green energy that you installed in your home, you also may be entitled to extra tax relief in reward for making your homework more energy efficient. The energy provider that you use may offer you a rebate or a premium for using energy-conscious utilities.

Here’s a glimpse of some of the tax credits that some states are offering.

Pennsylvania

The state of Pennsylvania qualifies a state income tax rebate of up to 10% for installing a non-solar water heater. You can receive up to $250 per water heater in Pennsylvania.

For you to qualify for this tax incentive, the appliance must be a high-efficiency natural gas storage heater, have an electric heat pump, or have a high-efficiency natural gas tankless heater.

Rhode Island

Rhode Island waves its 7% sales tax on items at the state defines as a renewable energy product.

Renewable energy products such as solar thermal collectors, solar panels, wind turbine towers, DC to AC and rotors, and geothermal heat pumps qualify for this reduction in sales tax. There isn’t a cap on this sales tax waiver.

New Mexico

New Mexico has a solar market development tax credit that provides $5 million annual budget to provide homeowners with tax credits to offset installation and equipment costs.

Homeowners and clean up to 10% of the total cost of the system or $9000, whichever is lesser of the two. This tax credit is used for installing solar panels or solar thermal systems.

California

Pacific Gas and Electric is California’s largest utility supplier. PG&E offers utility bill rebates to homeowners who purchase energy-efficient equipment and appliances.

While rebates change every year, last year, PG&E had a $500 rebate on electric heat pump water heaters and $50 rebate on high-efficiency washing machines.

Florida

A city in Florida, the Tallahassee County government offers a large selection of rebates and wants to cover residential energy-efficient improvements. With a total of 25 different appliances that they provide rebates for, appliances such as natural gas appliances, refrigerators, pool pumps, windows, doors, natural gas dryers, solar panels, water heat systems, and roofing are all eligible for a rebate.

Also, Tallahassee also offers a loan up to $20,000 for solar system panels. The loans that a city of Tallahassee provides range from 5 to 10 years, with a 5% fixed interest rate. For you to be able to qualify for the loan, your home must depend on natural gas or electric to run your utilities.

Who Can Claim Residential Energy Tax Credits?

If you’re considering installing green energy utilities into your home, taking advantage of the residential energy efficient property credit can help you to save up to 30% of the total cost of the new utility and your home.

The residential energy tax credit can be claimed for homes that were recently constructed. However, you have to own the home and must not be a renter. The residential energy-efficient property credit covers solar water heating and solar electric utilities that were put in place before December 31, 2021.

For your home to qualify for the residential energy property credit, it doesn’t have to be your main place of residence. Solar water heater’s, small winter Bynes, and solar panels are the different types of energy-efficient utilities that can qualify for this federal tax credit.

However, you should be aware that all improvements made your home let’s meet the standards set by the 2009 international energy conservation code. In addition, all equipment that was used for the installation of your energy-efficient equipment must meet the 6.0 energy star program requirements.

If you aren’t sure if the labor I was put into installing the green energy utility into your home, you can hire a professional contractor to complete an energy audit on your home.

Not sure if your state offers tax credits, savings, or rebates for green energy use? You can visit the website for the U.S. Department of Energy to see how your state organizes savings for a reduced carbon footprint.

Before filing your federal and state tax returns this year, make sure that you double-check through all of your receipts and papers to identify any information on the new appliances (or home improvements) that were installed in your home. You may have missed an opportunity to qualify for one of these government programs!

Tax Education clean energy tax incentives

Clean Energy Tax Incentives for New Homes

Thankfully, the technology that improves energy efficiency has drastically improved over the last couple of years, making it much more affordable for homeowners. With the tax incentives and tax credits that the federal government provides homeowners, green energy is quickly reducing the carbon footprint that homes are leaving. Plus, it’s helping thousands of homeowners to cut back on spending and save hundreds of dollars on their yearly utility bills!

While the majority of homes that have been recently constructed have improved state of the art appliances, mechanical systems, and improvements to the building envelopes, there may be ways that your new home is still dependent on non-renewable energy. That’s why installing green energy systems in your home is a great way to help reduce the cost of renting your home for the future, but will also help to reduce the carbon footprint your home leaves.

Just be sure that you’re only filing for clean energy tax incentives if you’re the owner of a home, not if you’re currently renting the place you’re residing in. 

Are you interested in learning more about clean energy tax incentives for new homes? If you have any tax-related questions about transferring your home’s appliances to green energy, we’re here to help. Click here to contact us today with any tax-related questions. 

Managing Partner of Silver Tax Group, author of the book “Stop the IRS”. Practicing a variety of tax issues, regulations, laws and rights. Specializing exclusively on tax matters involving IRS audits, negotiation, settlements & compromises.

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